Choices and Tradeoffs along the Production Possibility Frontier |
Even though we know that the farmer and the cowman should be friends, with a limited amount of resources, (land), there are only so many cattle that can be grazed or so much corn that could be produced.
If we start out producing mostly corn and a few cattle, (point B), and we want more meat in our diet, then we will have to give up some corn. The first acres that are transferred from corn production and into cattle grazing will be those that have the lowest opportunity cost, moving along the frontier, (point C). That is the number of cattle gained per unit of corn lost will be the lowest. Otherwise production of both corn and cattle would not be at a maximum.
|
| Point | Cattle | Corn |
| A | 0 | 280 |
| B | 10 | 270 |
| C | 20 | 250 |
| D | 30 | 220 |
| E | 40 | 180 |
| F | 50 | 130 |
| G | 60 | 70 |
| F | 70 | 0 |
|
Now, to get even more cattle, more corn must be foregone and the tradeoff between cattle and corn is getting more dear, (steeper).
This is illustrated by moving along the production possibility frontier from point A to B then on to G and H. Points inside the frontier are feasible, but not efficient. Points outside the frontier are unattainable given current resources.
In general, opportunity cost is the value of the next best alternative. In the case of production, opportunity cost is the value of the alternative good that could have been produced.
|
|
|